- IMF Lowers Nigeria’s Growth Projection for 2020
The International Monetary Fund (IMF) has lowered Africa’s largest economy Nigeria’s growth projection for 2020 from 2.5 percent previously predicted to 2 percent.
In its Article IV Consultation on Nigeria and published on the Washington-based institution website, Nigeria’s slow recovery process, weak investment and declining real incomes amid falling foreign reserves will continue to hurt the nation’s growth prospect in the year.
“High fiscal deficits are complicating monetary policy,” the report said.
“Weak non-oil revenue mobilisation led to further deterioration of the fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN) overdrafts. The interest payments to revenue ratio remain high at about 60 per cent.”
While the fund had mentioned Nigeria’s rising inflation rate since the land borders were closed as one of the factors considered for the downward review, it welcome CBN’s Cash Reserve Ratio increase as a measure to curtail rising consumer prices.
“The tightening of monetary policy in January 2020 through higher cash reserve requirements to respond to looming inflationary pressures is welcome,” it said. “Progress on structural reforms–particularly in Doing Business, finalising power sector reforms, and strengthening governance–is commendable. Major policy adjustments remain necessary to contain short-term vulnerabilities, build resilience and unlock growth potential.
“Non-oil revenue mobilization–including through tax policy and administration improvements–remains urgent to ensure financing constraints are contained and the interest payments to revenue ratio sustainable. Recourse to central bank overdrafts should be limited and the mission supports the authorities’ plans to use the low domestic yield environment to front-load their financing requirements.
“Further tightening of monetary policy–albeit through more conventional methods–is needed to contain domestic and external pressures arising from large amounts of maturing CBN bills. The mission reiterated its advice on ending direct central bank interventions, securitizing overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate. Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment.”